The Central Bank is switching to an inflation targeting monetary policy regime to keep the spiralling prices of goods and services in check.
The country has been using a monetary targeting framework and, in a few cases, a fixed exchange rate framework.
National Bank of Rwanda governor, John Rwangombwa says the inflation targeting is a modern policy framework. As the economy grows and transforms, the current framework of monetary aggregate we are using becomes obsolete.
Under an inflation targeting framework, emphasis is on sending a clear message about the stance of monetary policy and influencing inflationary expectations through careful communication by the central bank to the public and the markets.
As it is, Mr Rwangombwa is working on modernising the monetary policy frameworks, to help anchor inflation expectations in the interim before the East African Currency Union is established.
He did not, though, explain whether the central bank will implement hybrid monetary policy frameworks, which would retain some elements of monetary targeting along with elements of inflation targeting.
While the central bank projects inflation to remain in single digit, low food production, a spike in global oil prices, increase in tariffs for some products, and increase in prices of soft drinks produced by Bralirwa remain a threat.
Data from National Institute of Statistics shows Rwanda’s Consumer Price Index (CPI), a main gauge of inflation was 7.3 per cent year on year in April from 7.7 per cent in March.
“In April 2017, Food and non-alcoholic beverages, housing, water, electricity, gas and other fuels and transport rose by 15.8 per cent, 2.2 per cent and 6.1 per cent respectively,” the statistics body reported.
The country adjusted its pump prices upwards byRwf22 ($0.026) for each litre of petrol and Rwf18 ($0.021 ) for diesel, from Rwf970 ($1.16), Rwf932 ($1.12).
Trading data from East Africa Commodity Exchange shows the national average retail price for a 100kg bag of maize has risen from Rwf20,000 ($24) early this year to Rwf35,875 ($42.6).
Rwanda is, however, entering a rainy season, with expectations of improved food supply and lower prices in coming months.
The budget managers have substantive amounts to stock emergency foods in the 2017/18 fiscal year. The country plans construction of several valley dams to support irrigation in a country prone to weather volatility.
“High inflation is related to food supplies, which were diminished by the drought, and purchases by neighbouring countries,” said Laure Redifer, the International Monetary Fund Head of Mission.
According to Usaid Famine Early Warning Systems, farmers began harvesting Season B beans and maize crops in mid-May but warns that some sectors in Kirehe and Bugesera districts in Eastern Province and Rusizi District in Western Province are likely to experience crop production shortfalls due to below-average rainfall and impact of armyworm.
“Rweru sector in Bugesera District is a special case as it is likely to have a second consecutive, severe crop production shortfall due to the delayed onset and long dry spells during Season B,” warns the global food security watchdog.
Staple food prices remain high and have not significantly eased with the initial harvest, but they are expected to fall in June. Further staple food price declines are likely through September as imports from Tanzania and Uganda are expected to increase.
“With the recent good rains, we anticipate that inflation will come down in the coming weeks and months. In fact, inflation is already going down,” Redifer told Rwanda Today.